March 28, 2012 / 13:25 IST
By Sandeep J Shah, CEO of Sampriti Capital
The Great Indian Consumer Bull Market was alive and kicking even at the bottom!
Is the new bull here still with a host of skeptics still lying in it's wait even as most of the pessimists were buried by the flood of global liquidity in January...
(Therefore we might be in the Second of The Four Famous Bull Market Phases- Pessimism, Skepticism, Optimism, and Euphoria)
..or has the bear pounced back after a 20% odd rally. For the record bear markets can give sharp 20-30% pull backs but perhaps the most positive indicator has been the increase in volumes in the cash segment and higher market breadth while the rally was on.
The bears have again resurfaced with profit taking ahead of the UP Election result and concerns of a significantly populistic budget and accentuated now by a poor at best mediocre budget.
Not surprising given that the Budget date was postponed to after the election result, if the FM didn't wish to bring in more populistic measures or had the conviction to bring in bold reform, then it could have been held the day after the last day of polling. The short term outcome of the budget should stall between 5000-5200, of course if there is a hugely negative reaction to the GAAR provision things could get worse but the hope is that the government will not wish to risk a mass exodus by FII's. India needs capital now as much as it has ever had in its history.
Stepping back a little, The necessary conditions for a bear market bottom were all there in December, weren't they..
The 3 major criteria of poor sentiment, low even absurdly cheap valuations and capitulation-sense of panic and fear among investors.
To these major criteria would add 2 additional criteria of a 30% odd correction & abundant liquidity
Not so well appreciated by most investors, but liquidity has often been abundant for some time before bear market bottoms get formed ,as was this time and in 2008 and proved the catalyst .
Also, Perhaps not so well understood was that the Fed has been increasing money supply even without resorting to QE2.5 or QE3 or the increase in the ECB's balance sheet was far bigger than the LTRO1 numbers even as LTRO2 is now underway.
Sentiment and pessimism was at an all time low in December 11, even if the Nifty wasn't. Policy sensitive sectors didn't just create a sentiment low with prices getting close to the lows of March 2009 with individual stocks falling below those lows and asset valuations way below 2009 levels.
Fortunately all this happened without any significant FII selling in any way and so remained the residual fear at the bottom.
The December low of 4530 met 2 of the major 3 criteria for a bear market bottom, Sentiment couldn't have got bleaker with industry chieftains screaming themselves hoarse, companies queuing up to announce plans to invest overseas with the PP (policy paralysis ) being all pervasive. According to media reports, even Reliance Industries long believed to be the Czar at managing India's byzantine policy and regulatory land mine was considering investing in oil and gas exploration assets overseas!
Valuations in infrastructure, power, capital goods, property, etc. had gotten to levels significantly below their replacement cost and hit the levels in 2008 when the popular sentiment was that capitalism as we knew was all but dead.
We did see complete capitulation in these sectors with stocks even falling 20% or more on consecutive days
